Is the time right for UCP 700?

(Updated 27th April 2017)

It is estimated that around 70% of documents presented under documentary letters of credit are rejected upon first presentation to banks due to discrepancies (or apparent discrepancies).

In 2007, the International Chamber of Commerce published the latest revision of its rules – “Uniform Customs and Practice for Documentary Credits, Publication 600”, widely referred to as “UCP 600”. These rules have been adopted by international traders and bankers in more than 160 countries and are intended to interpret and govern the issuance and management of documentary letters of credit.

The UCP 600 rules clearly state and define the obligation of parties to a credit, together with documentary requirements, with the aim of reducing errors and disputes. A complementary ICC publication – “International Standard Banking Practice for the Examination of Documents under UCP 600, Publication 745E” (referred to as ISBP 745) is also available and is intended to assist document examiners in the day-to-day interpretation and application of the UCP 600 rules.

All international traders who use letters of credit need to understand the UCP 600 rules in order to significantly improve the chances of “right first-time” presentation of documents with resulting prompt payment from the obligated bank.

Our range of letter of credit training courses have been very popular with exporters and importers aiming to enhance their knowledge of the UCP 600 rules together with the general day-to-day management of L/Cs.

10 years have elapsed since the last formal revision of the UCP rules and we are aware of discussions between the ICC Banking Commission Executive Committee and the various National Committees as to whether a new revision – UCP 700 – is now appropriate.

Given that the ISBP 745 came into effect as recently as 2013 and has served to clarify a number of common areas of ambiguity and error, it was felt by the ICC Banking Commission Executive Committee that there was no immediate justification to revise the UCP rules. That said, they are taking into account a number of counter arguments putting the case forward for such a revision.

Following a meeting of the ICC Banking Commission in Jakarta in April 2017, an update has been provided by David Meynell, Senior Technical Advisor to the ICC Banking Commission:

UCP 700: ICC Decision.

“We have covered this issue on a couple of occasions in the past and remarked on the fact that we do not believe this to be an opportune time for a revision of UCP 600.

A session on the subject was included during the ICC Banking Commission meeting held in Jakarta in April 2017, which provided the results of a consultation with ICC National Committees.

Feedback was received from 20 National Committees. Only one supported a full revision of UCP 600, with three requesting reviews of individual sub-articles.

The comments from ICC National Committees made it clear that any existing problems lie not with the rules themselves, but with their application, i.e., practice (“international standard banking practice”) of the rules.

It was highlighted that 50% of the problems applied to the presented documents and that it was a justifiable assumption that a greater understanding of ISBP 745 would help alleviate these problems and greatly reduce this percentage. It was further stated, as regards to the remaining 50%, that it was difficult to see how a revision of UCP would make much of a material difference as many of these causes were outside the scope of correction by the beneficiary.

As we ourselves have stated on many occasions, the majority of problems are caused by:

  • Poor drafting of the credit;
  • Lack of understanding of documentary credit workflows and the principles of UCP 600;
  • Lack of attention to detail and management of the production, shipment and document collation processes;
  • Excessive and unnecessary data being added to documents;
  • Restricted access to ISBP 745.

However, non-justification for a revision does not prevent other routes being taken to alleviate the problems that are being faced. As such, the ICC Banking Commission have recommended three work-streams to be taken forward:

  • Guidance: More comprehensive and widely circulated training and guidance
  • Access: Review pricing and digital availability of UCP rules and practices
  • Marketing: Smart usage of information to achieve greater awareness by practitioners

We will comment further on these work-streams as more details appear.”

With thanks to David Meynell for allowing us to link to his above article. David’s excellent blogs on trade finance topics can be found on his website tradefinance.training .

MJ Hayward Associates Ltd will continue to assist in the delivery of the objectives referred to by the ICC Banking Commission through practical training to exporting and importing companies. We will help your key people to draft workable credits from the outset, understand the provisions of the UCP 600 rules and ISBP 745, and prepare documents which comply with the most challenging of terms.

Contact us to discuss your requirements.

Check out our CPD accredited courses:

The Essential Guide to Letters of Credit for Exporters

The Essential Guide to Letters of Credit for Importers

Advanced Letter of Credit Training

2017-04-27T18:37:37+00:00 January 16th, 2017|